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Nov, 14

Are You Acquiring Too Many Profit-Draining Customers?

As a VAR/MSP you want to make all your customers happy and for some solution providers that means making concessions from time to time. In fact, some IT solution providers become so flexible with their solutions and services that it becomes difficult to discern what their standard offering really looks like. Eric Gray, CEO of managed services provider Convergence Networks doesn’t believe in making exceptions, and the way he avoids this profit-draining problem is by nipping it in the bud during the prospecting stage.

Last year, Gray’s company acquired only four new customers and the reason wasn’t for a lack of leads. The truth is there were nearly 40 leads in its sales funnel and 80% of those were warm leads acquired through customer referrals. Plus, when this MSP presents a prospective customer with a contract, it closes the sale 50 percent of the time. All of that means that in 2013 Convergence Networks intentionally KO’d more than 30 prospects. Despite acquiring such a small number of new clients, the MSP experienced 9 percent revenue growth over 2012, and it maintained double-digit profit margins per customer.

The fact is that Gray strictly follows a few time-tested business processes when engaging prospects. For example, a prospect that wants to get into a debate about why its antivirus is better than Convergence Networks’ is likely not going to work out. If a prospect wants to “start out” as a break-fix client, that’s not happening, either. End users who want to challenge the MSP’s pricing are also candidates for the blacklist.

Gray is quick to point out that sticking to these strict standards isn’t based on a pompous, know-it-all attitude. “I’ve learned the hard way that every time I make an exception to these rules, it always comes back to haunt me,” he says. “Additionally, industry regulations in markets such as healthcare, financial services, and hospitality are no longer holding only end users liable for security breaches — IT service providers also are now culpable.”

Gray shared with me some additional insights into his company’s success, such as his company’s commitment to following ITIL standards, which you can read about in my latest feature story, “Say ‘No!’ to Unprofitable Customers,” which will be in the December print edition of Business Solutions magazine and is available online now at BSMinfo.com.